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IRA Rollovers Hit Record Pace, Still Accelerating: Study

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What You Need to Know

  • Rising markets and job movement due to the pandemic are driving these moves, according to the Secure Retirement Institute.
  • Rollovers are expected to increase even more in the next five years.
  • Financial professionals were the largest influence in directing the move from DC plans.

Defined contribution savings are being rolled into IRAs at a record rate, largely due to the pandemic’s impact on job dislocation, according to a study by LIMRA’s Secure Retirement Institute. The study looked at what drove investors to make these decisions and who had the greatest influence in the decision.

Typically, DC plan participants who retire or change jobs roll more than $500 billion a year into IRAs, according to the study, which predicts rollovers will exceed $760 billion annually within five years. In 2019, rollovers were $565 billion, while in 2020, the pandemic year in which millions lost jobs, $623 billion was rolled over.

Much of this growth is due to “the accrual of balances in workplace savings plans,” but these “rollovers rank among the largest financial transactions Americans will make,” the study notes.

The study, “Money in Motion: Understanding the Dynamics of the IRA Rollover Market,” found that six in 10 of investors ages 40 to 75 who recently left jobs moved their DC plan savings into IRAs.

It also found that a majority of those (51%) spoke with financial professionals before rolling over the balance. Older investors (ages 65 to 75) were more likely (56%) to speak with a financial professional than younger ones.

The report also found:

  • Most investors (54%) made the decision to roll their DC plan prior to leaving their job, as much as 90 days before.
  • Those with larger balances were “more deliberate” in their moves. In fact, the study found that 68% of those who rolled a balance of $500,000 or more did so before leaving the positions.
  • Twenty-six percent of those who left an employer in the past two years kept the entire balance in the DC plan. Reasons included: convenience, a decision hadn’t been made, the performance in plan was good, they did not need the money and the former plan had good service.

Those who did leave money in a former plan typically were younger and were women. Also, those more likely to leave savings in the DC funds worked at an educational institution, a hospital/health care organization, government employer or an employer of 5,000 employees or more.

However, “These accounts represent future money in motion, as investors may decide to cash out, roll over, transfer, or begin taking income from the account at any point,” said Drew Maresca, research director, Retirement Research, in a statement.

The study also found that only 3% of those who left their job in last two years converted their savings into an annuity. The study states that could reflect “the low availability of this payout options — only 28% of these investors had an annuity payout option.”